Millennials, the 'Gig Economy' and the future of employment contracts
14 September 2017

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Freelancers and professional sub-contractors now make up 35% of the UK workforce (IPSE), and this is growing year on year. However, some organisations still view contractors as an expensive commodity and strategise purely to attract and hire talent on full-time, permanent contracts.

But what does this actually mean to businesses and the labour market?  And, is this aligned to future supply and demand dynamics?

The labour market:

Earlier this year, unemployment fell to a 32-year low of 4.7% according to figures released by the Office of National Statistics. There were 305,000 more people in work in the three months to February 2017 than was the case at the same point in 2016. During this time, the self-employed population grew by 148,000 – adding more new jobs than the employee population which grew by 144,000, showing that self-employment remains a crucial catalyst for the continued strength of the UK labour market.

The self-employed have been contributing a more than proportional number of jobs to the labour market since the recession of 2008, accounting for 40 per cent of the total growth in employment.

Work-force: Millennials and the future of employment contracts:

Early last year Virgin Group held what it called "a corporate day" asking its employees to behave in the way many traditional firms require - for just one day.

Staff had to wear formal business wear, arrive at 9am, use the titles Mr and Mrs, couldn't look at social media and weren't allowed to make personal calls.

Founder Sir Richard Branson, summed up the thoughts of much of the workforce. "It was a horrible experience for everybody," The purpose of the exercise, he says, was to give its people "a taste of what a lot of the world is still run like".

This demonstrates the current paradigm shift and a new pattern emerging. The employee experience status quo is changing, the millennial workforce are demanding more autonomy and are increasingly dismissive of rigidity and the perceived security of the traditional permanent contract of employment. They want to work on their own terms and to be judged on their results as opposed to conforming to corporate frameworks and rules, which is particularly evident in the drop in average job tenure over the last ten years.

Businesses: The real cost of permanent employees’ v contractors:

Hiring a permanent employee is almost always a lot more expensive than most people realise.

Let's look at a typical and basic example. A permanent, Senior Software Engineer costs a business, let’s say £50,000 per annum. In addition to their basic salary, you must factor in:

  • remuneration package,
  • employer pension contribution,
  • employer NI,
  • employer tax,
  • holiday pay, sick pay, maternity / paternity pay,
  • cost per desk,
  • training & development funding. 

Put this up against contractor charging £400 per day for a 12-month contract, who will average 220 working days throughout the year at an all-in cost of circa £88,000. Although this may seem more expensive, you only pay for days worked, you do not have the added administration, very little training and development costs and the contractor (in most cases) will bring their own device. As well as the added benefit of being able to make their services redundant at short notice and without any come back on the organisation.   

The perception of work is indicative that the future workforce is moving towards a preference of self-employment, adding further momentum to the rise of the "Gig Economy" and away from the traditional framework of employment contracts and single-company career progression. Couple this with the reaction and the likely realisation of labour market dynamics by negligible difference in cost, I suspect we will see many organisations rethink their strategy for engaging talent over the next 3-5 years.

Granted there are some organisations who require FTE employees in place for more explicit reasons but in general terms, despite IR35, Brexit and other economic provocations, I just cannot see a future that doesn’t include a steady decline in full time employment and an increase in freelance and sub-contract engagements. 

I would be interested to get the thoughts of in-house recruiters on this subject and whether they see hiring freelancers as being a significant part of their Talent Aquisition strategy over the next 3-5 years. 

Posted by Gareth Davies.


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